Influence Of Public Financial Management Reforms On Organizational Performance Of Commercial State Corporations In Kenya

Abstract

Most commercial state corporations in Kenya have challenges in financial management which have remained below average, and this is evidenced by streak of losses. The poor performance has been attributed to lack of sound financial management, poor reporting, and insufficient internal controls among others. These challenges have necessitated the need to interrogate the linkage amongst public financial management reforms and organizational performance of commercial state corporations. The specific objectives guiding the study were: to determine the extent to which financial planning reforms influenced organizational performance of commercial state corporations in Kenya; to investigate the effect of internal control systems on organizational performance of commercial state-owned entities in Kenya. to examine the influence financial reporting has on organizational performance of Kenya’s commercial state-owned entities; and to determine the effect of revenue mobilization practices of organizational performance of commercial state corporations in Kenya. A corresponding number of hypotheses were formulated and tested at 95 percent level of confidence. The study was anchored on three theories: new public financial management theory, the agency theory and the theory of participatory budgeting. This study adopted a mixed method research design. It combined cross-sectional, descriptive and correlational research designs. The study focused on 30 commercial state corporations as the target population and utilized questionnaires to obtain primary data from one respondent from each of the thirty corporations. The questionnaires were administered online to the sample of 30 corporations out of which 24 filled and returned the questionnaires. This was a response rate of 80 percent. The data was analyzed using simple and multiple linear regression for independent effects and combined effects respectively. Results of the independent effect of financial planning indicated a positive and a statistically significant association with organization performance. However, financial planning reforms could only explain 21.9 percent of performance. Furthermore, jointly with other variables, financial performance was found not to have a significant association with performance of state corporations. On its own, internal control systems were found to account only for 2.8 percent variation in organizational performance. Further, the independent effect of internal control systems was found not to be statistically significant. Jointly with other variables, internal control systems were however found to have a statistically significant influence on performance. Financial reporting reforms were found to have a strong and positive correlation with organizational performance of 0.954 and were found to account for 90.9 percent variations in performance of state-owned organizations. Independently, financial reporting reforms were found to have a positive statistically significant association with performance. Jointly with other variables, financial reporting was also found to have a direct and statistically significant effect on state-owned entities performance. Revenue mobilization practices were found not to have a statistical effect on organizational performance, either individually or when combined with the other variables of the study. On its own, revenue mobilization reforms only accounted for 1.3 percent of performance and had a positive though weak correlation with performance. In addition, the association between revenue mobilization and financial performance was found not to be statistically significant. Similarly, the combined effect of revenue mobilization practices was found to have a statistically insignificant association with performance. The results of the combined effect of the public financial management reforms were found to account for 92.8 percent change in organization performance of state-owned entities. The study offered a theoretical linkage between public financial management theories and performance.